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China Repeals Textile Tax, Threatens WTO Grievance

The conflict comes as little surprise. In interviews last year, Bush administration officials signaled clearly that they were almost certain to impose safeguard limits once the old quota system expired. Chinese officials and major textile producers here said they expected such a move. So did major buyers of Chinese clothing, such as Wal-Mart Stores Inc. and J.C. Penney Co. Many held off on shifting purchase orders from other countries to China until they saw how the situation would be resolved.

"If the administration didn't invoke safeguards when some of these goods are up over 1,000 [percent], when would they ever?" asked Pietra Rivoli, a trade expert at Georgetown University.

But China's response highlights how some factories here -- particularly smaller operations -- may have miscalculated the likelihood of safeguard quotas and are now crying foul as they forgo shipments to the United States and Europe.

"The Chinese government has received a lot direct and indirect pressure" from the domestic textile industry, said Sun Huaibin, deputy editor-in-chief of China Textile, an official trade magazine.

As the countries' top two commerce officials prepare to meet later this week, both appear unable to offer concessions lest they suffer the wrath of pressure groups at home.

But even as Commerce Minister Bo raised the prospect of a full-blown case at the WTO -- a process that takes years to unfold and usually results in a settlement -- he was careful to wall off the textile dispute. He pledged that his government would not link it to other trade issues, such as the ongoing Doha round of negotiations aimed at widening the scope of the global trade body.

"China does not want to link the textile issue," Bo said. "China is a country of principle. We do not want to couple all things under one single subject to bargain with others."

Among the other issues the U.S. commerce secretary is likely to raise in his visit this week is the prevalence of pirated goods on the streets of China and in markets worldwide, churned out by Chinese factories.

U.S. officials blame piracy in China for costing companies tens of billions of dollars a year.

"The intellectual property issue is so large and important that it would be a very productive meeting if we were to get progress for that alone," Gutierrez said in an interview with Bloomberg News. "Protecting intellectual property is a way of opening up the market for our products."

Special correspondent Eva Woo contributed to this report.

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